Indonesia's Vulnerable Strivers

Indonesia's Vulnerable Strivers

THE SOURCE: “Lasting Impacts of Indonesia’s Financial Crisis” by Martin Ravallion and Michael Lokshin, in Economic Development and Cultural Change, Oct. 2007.

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One of the remarkable things about the 1998 financial crisis in East Asia was how quickly some of the victims seemed to recover. In Indonesia, the world’s fourth most populous country, the number of destitute people doubled in a single year, but the poverty rate improved immediately as the economy stabilized. Infant mortality rates in urban areas surged, then fell back. By 2000, the economy of the archipelago had begun to expand again. In 2006, it grew by about six percent.

But a detailed statistical analysis by World Bank economists Martin Ravallion and Michael Lokshin shows that the crisis followed an unexpected pattern. The poorest of Indonesia’s poor were not its most vulnerable. The slightly less poor areas—villages better integrated into the national economy, such as those that had moved beyond subsistence farming and were engaged in trade—were more vulnerable. Areas that were desperately poor before the crisis stayed that way; the people it struck hardest were those who had begun to climb the economic ladder.

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